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COVID-19 Has Upended The Residential Property Market

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by Tommy Wu
Apr 15 2020

As the COVID-19 outbreak continues to take its toll on the economy, IBISWorld has examined the outlook for the residential property market and the impact on related industries. According to IBISWorld Senior Industry Analyst, Tommy Wu, the Real Estate Services and the National and Regional Commercial Banks industries are expected to be hindered as residential housing prices fall, fewer buyers and sellers enter the market, and lenders face rising bad and doubtful debts.

‘The outlook in the near term for property prices is bleak, given social distancing measures have slowed home sales. In addition, wider macro-economic factors such as rising unemployment and declining household incomes are expected to put off home buyers for the remainder of 2019-20,’ said Senior Industry Analyst Mr Wu.

Property price outlook

According to data and surveys from SQM Research and CoreLogic, the number of homes sitting on the market for longer has risen, while clearance rates were less than 50% for the last weekend of March and first weekend of April 2020. Clearance rates were at some of the lowest levels recorded since this data was first collected, with many properties being withdrawn from auction, which drives down the clearance rate.

‘As the restrictions to inspections and auctions have taken effect, the market has had less sellers and buyers. The COVID-19 outbreak has increased the hurdles and barriers for owners to sell, while also discouraging buyers from entering the market,’ said Mr Wu.

Residential housing prices are expected to fall for the remainder of the year and the decline is set to extend into 2020-21, especially if some property owners fall into negative equity or are forced to sell their property. Banks are currently providing relief on mortgage repayments for those affected, which may help to curb the decline.

COVID-19 disruptions and restrictions

The COVID-19 outbreak has led to significant disruptions across the residential property market. Many property owners have had to reduce their rent, as tenants have run into financial difficulty amid rising unemployment. The debt-servicing ability of borrowers has also been affected, leading to a surge in requests from households to banks for support or assistance, such as deferring mortgage repayments.

‘Rising financial strain on both tenants and landlords has prompted the Federal Government to announce a moratorium on evictions. Landlords and tenants have been encouraged to work together to get through the COVID-19 crisis, meaning landlords are likely to be compelled to accept reduced rent in the short term in order to secure and retain tenants,’ said Mr Wu.

For buyers and sellers of property, various state governments have also implemented restrictions to varying degrees for auctions and house inspections. In general, auctions and inspections have been moved online or to digital platforms as social distancing measures have taken effect and traditional auctions and open-house inspections have been banned. Prior to the Easter break, the Victorian Government even banned private inspections of properties currently occupied, only for the decision to be reversed the following Monday.

Affected industries

The Real Estate Services industry and the National and Regional Commercial Banks industry are among some of the industries that are likely to be hit harder by the downturn in the residential property market. Slower sales activity and fewer listings will likely lead to a greater decline in revenue for the $26 billion Real Estate Services industry than previously anticipated, while the financial viability of some real estate agencies may also come into question. The COVID-19 outbreak and its impact on the residential property market is also likely to hit the bottom line of banks and lenders as mortgage stress rises and they face an increase in bad and doubtful debts.

IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647